Parking money

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Mike11
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Parking money

Post by Mike11 » Tue Aug 20, 2019 12:22 pm

I sold my business and my CPA says I can wait to pay the lump sum taxes until April. Looking for opinions on where to park 600,000 until April? I must admit to being a bit confused by the SEC yield listed on my Vanguard Prime Money market which is listed at 2.1% vs Vanguard's YTD reported rate of 1.5%. Also, 6 month CD rates are significantly lower than a 1 year CD but I doubt the IRS would be excited if I don't send them MY money in April.

livesoft
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Re: Parking money

Post by livesoft » Tue Aug 20, 2019 12:35 pm

The MM fund does not pay an unchanging rate. The rate is changing constantly. So the rates paid in Jan, Feb, ..., Jun, July are not the rates paid in the past 7 days. Does that help explain your yield question?
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RickBoglehead
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Re: Parking money

Post by RickBoglehead » Tue Aug 20, 2019 12:35 pm

Often posted and answered.

Vanguard's yield went up from the start of the year, now is dropping back down...

An 11 month No Penalty CD from Ally was 2.2% last I looked. You can jump out anytime after 6 days.
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sport
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Re: Parking money

Post by sport » Tue Aug 20, 2019 1:23 pm

RickBoglehead wrote:
Tue Aug 20, 2019 12:35 pm
Often posted and answered.

Vanguard's yield went up from the start of the year, now is dropping back down...

An 11 month No Penalty CD from Ally was 2.2% last I looked. You can jump out anytime after 6 days.
If the OP wants to use CDs, he/she should pay attention to FDIC coverage limits. The OP mentioned 600K.

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RickBoglehead
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Re: Parking money

Post by RickBoglehead » Tue Aug 20, 2019 1:26 pm

Of course.
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fru-gal
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Re: Parking money

Post by fru-gal » Tue Aug 20, 2019 1:28 pm

Mike11 wrote:
Tue Aug 20, 2019 12:22 pm
I sold my business and my CPA says I can wait to pay the lump sum taxes until April.
I guess, depending on various things, but are you sure you won't get into an owing a penalty problem...

(I thought this was going to be a thread about how to store quarters in your glove compartment.)

Trader Joe
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Re: Parking money

Post by Trader Joe » Tue Aug 20, 2019 6:34 pm

Mike11 wrote:
Tue Aug 20, 2019 12:22 pm
I sold my business and my CPA says I can wait to pay the lump sum taxes until April. Looking for opinions on where to park 600,000 until April? I must admit to being a bit confused by the SEC yield listed on my Vanguard Prime Money market which is listed at 2.1% vs Vanguard's YTD reported rate of 1.5%. Also, 6 month CD rates are significantly lower than a 1 year CD but I doubt the IRS would be excited if I don't send them MY money in April.
I highly recommend VMMXX (Vanguard Prime Money Market Fund). This is what I use.

HomeStretch
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Re: Parking money

Post by HomeStretch » Tue Aug 20, 2019 6:42 pm

You don’t mention whether you pay state taxes or not. Depending on your tax equivalent yield:

Multiple high yield savings accounts or CDs (to stay below FDIC limits), US T-Bills, Vanguard VUSXX Treasury MMF or Vanguard Prime Money Market.

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Hector
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Re: Parking money

Post by Hector » Tue Aug 20, 2019 6:49 pm

I would choose an appropriate (based on tax bracket) vanguard money market fund OR treasury bills

BuddyJet
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Re: Parking money

Post by BuddyJet » Tue Aug 20, 2019 8:29 pm

Since you plan on waiting until April, check with accountant to be sure your estimated payments put you in the safe harbor. Otherwise, you might be subject to estimated tax underpayment penalties.

I parked my April tax money in a short term tax free bond fund. A bit riskier than a MM but paid better for me after tax.
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Topic Author
Mike11
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Re: Parking money

Post by Mike11 » Tue Aug 20, 2019 8:52 pm

Thanks for all the advice. As FYI: as long as my quarterly income tax payments this year total 110% of last years tax, I will have no penalty. My state tax rate is 5% so equivalent yield is not significantly higher for the Treasury MM but it is absolutely worth considering for the safety factor. My brain was not working as I evaluated SEC yield from YTD yield. One is for a full 12 months while the other is only showing 8 months of return. Obvious after thinking about Livesoft's explanation. The Vanguard prime MM looks very attractive plus I can have my full selling price wired straight into my brokerage account and begin distributing to my various Vanguard investments with no holding period. Fru-Gal, I'll be sure to add the quarters I keep in my glovebox to those investments.

student
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Re: Parking money

Post by student » Tue Aug 20, 2019 9:35 pm

It looks like you have decided on Vanguard MM fund. If you change your mind and go for online savings account, make sure that you stay under FDIC insurance limit.

BuddyJet
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Re: Parking money

Post by BuddyJet » Wed Aug 21, 2019 10:32 pm

I am new to Vanguard but when my bank wired about $300k (not ACH or check), there was no waiting period andI invested the same day as the wire was sent.

Op might want to see if the waiting period applies and plan based in that info. A wire fee might be worthwhile if it avoids a waiting period.
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